The European industrial reserve army

Great strategies are always composed of a sequence of small initiatives wherein the final picture only becomes visible once all of the pieces of the puzzle are in place. This division of singular initiatives draws popular attention to marginal issues, while keeping the overall strategy away from public opinion or parliamentary debate. Great supranational strategies, then, have the added advantage of limiting the debate to singular measures and specific local questions relevant to any one state. An underlying plan cannot be contested because it’s never made explicit, it’s not subject to public debate and goes beyond the scope of national authority. Therefore, it remains perfectly shielded from the democratic process.

One of these great strategic plans that has been taking place over the past few years is the transformation of both the European labour market and welfare state. This paradigm shift was announced about twenty years ago by the OECD: state economic involvement switched from the promotion of full “employment” to laissez-faire and mercantilist policies promoting full “employability”. The Right and Left in countries everywhere have been equally working – in Italy as in Europe – to apply this new paradigm. Like all great strategies, this one is also composed of a sequence of specific measures and references a very specific model.

The first puzzle piece of this particular plan has been the compression of wages. It is fundamental that the level of wages is kept low to maintain competitive systems of production. The need to be competitive and to tighten our belts in times of crises are the typical excuses used to help accept the compression of wages. As we already know, these stated needs become more pressing when an adjustment in the exchange rate is not possible. In other words, when the exchange rate is fixed, wages have to be flexible. In the Eurozone, when it comes to dealing with external imbalances we have decided to replace the exchange rate as a mechanism of adjustment with unemployment and the lowering of wages. In the public sector, wage reduction can take place by decree (by reducing them in real terms or by just freezing them in nominal terms – as is often the case). In the private sector, wage reduction is achieved by decentralising collective bargaining at the level of single companies. In that way, the bargaining power of individual workers is drastically reduced. The lowering of wages, in general, makes firing people easier and increases competition over jobs.

Next comes the well-known issue of flexibility – as it is popularly used in technical jargon as the increased ease of firing people. The main aim of flexibility is to reduce the whole system of legal protections that make it difficult to fire workers. How do you make a change like that acceptable? You get people in the lower classes to fight each other, picking one category of citizens at a time; private sector against public, young against old, women against men, the industrial North against the rural South (or, in certain countries, West against East). For its advocates, flexibility delivers justice, modernity, and more efficiency in times of crisis.

In Italy, for example, after many attempts (despite a lot of public resistance), Article 18* has finally been shot down. In its place, The Jobs Act** has substantially – although not formally – abolished the concept of a permanent job contract; as all the guarantees and protections that made a permanent contract possible have been removed. Thus after drastically penalising some of the workers in the private sector, it was then easy to convince them to lay the blame on those in the public sector – whose jobs were more secure. Now we have private sector workers clamouring to eliminate the ‘privileges’ of the public sector; so slowly but surely, ‘flexibility’ in the form of anti-job security is given to all. By way of example, Spain is often lauded for its recent job market reforms: About 28% of new contracts are for less than seven days; employees are hired on Monday, dismissed on Friday evening, and then back for more that following Monday.

The third puzzle piece of this great strategy is workforce mobility. Once fired, the unemployed are still a potential resource elsewhere; so it is useful to have the ability to move them to areas where they are needed most. For this to happen there needs to be perfect coordination between public employment agencies; not surprisingly, this is a major priority in most countries. Public employment services – once established to connect local employment supply with demand – must now act like nodes within a single, trans-European network that enables rapid deployment of unused labour from one country to another with higher demand. Here too the justification is simple: more European integration and more opportunities for those who have lost their jobs.

The fourth piece of this strategy, which is also quite crucial, is the maintenance or formation of competency (i.e. lucrative skills) that will make the unemployed “employable”. Nobody wants an employee who, after years of inactivity, cannot use the latest machinery or IT applications; they’ve got to be trained. Obviously as an employer you’re not going to pay for this individual to gain further education since this could open the door to better jobs; instead, you just make sure the professional and technical skills making them immediately employable are up to date. All the employee needs to understand is the latest machinery and technology used by their employer. This type of measure can obviously be dressed up as the facilitation of competency now and for the job market later on. In this way you can rest assured the entire working age population is in a permanent state of employability – even during periods of unemployment – and always available for the needs of production.

Unfortunately, this arrangement does not stand if people are unemployed for very long periods of time or have work contracts that are too short and infrequent to ensure a minimum level of subsistence. Here the most fundamental piece of the puzzle comes into play: theguaranteed minimum income. This has to be set at such a low level as to incentivise people into accepting any job, even the least appealing ones. It must also be subject to stringent “conditions” so it can be denied immediately if a person refuses a job offer or fails to attend a training course. This unemployed person must then, of course, always be available at some job centre as not to invalidate their dismal guaranteed minimum income.

There’s no need for any big stunts to ‘sell’ the guaranteed minimum income as a great social achievement. What really characterises it as a piece of a far more reactionary strategy, however, only emerges when one considers the conditions attached to it. One could for example pay workers fairly – in line with productivity – and mandate a minimum wage able to support a basic standard of livingfor everyone. Just as one could also set up a ‘public employer of last resort’ system. But all of this would restore the autonomy and dignity of workers, as well as some bargaining power, which would make them more difficult to coerce. The difference between guaranteed minimum income and minimum wage might seem little more than a matter of semantics, but it’s the difference between dignity and dependence, between freedom and slavery.

The seal on this new model of welfare state is the everlasting pension reform, an issue that re-emerges at regular intervals. The reason for these recurrences is the desire to progressively privatise the pension system, reducing more and more of its public part until citizens are left with no choice. In this new welfare state, it’s worth spending money on individuals only while they are of working age, and thus potentially useful; after that, they are just a burden. For this reason, it is preferable that pensions be cut while spending is slightly increased on vocational training and the livelihood of the unemployed. During their working life, those who can afford it will put aside enough money to support themselves when old; the others will either emigrate where life is cheaper, or fall into poverty. People asking for a cut in public sector spending, even when it’s against their interests, will be delighted.

Taken on their own, each of these initiatives might appear both reasonable and acceptable to the public eye; some may even consider them to be signs of progress towards a fairer and more efficient society. Yet, once you put them together and pay close attention to how they are applied, a very different picture emerges. This picture shows that all working age people must continually be available for productive systems, ready to be employed or disposed of on demand, trained with the necessary skills, kept at a mere subsistence level when out of work, and subject to strong competition to get work – implying what little bargaining power they will have once hired. The model being referenced here is the German one – perfected a decade ago with the Hartz reforms – from Peter Hartz, an ex-Volkswagen manager who was advisor to the Schröder government.

You cannot understand what’s happening in Europe if you don’t know what the Hartz reforms are, and in particular the Hartz IV package. And you can’t understand the Hartz reforms if you don’t know the pillars of German ordoliberalism. Compared to the Anglo-Saxon flavour of economic neo-liberalism ordoliberalism is much more extreme because it explicitly contends that it is the State’s duty to provide a political framework that enables capital to dominate labour. In practice, ordoliberalism is a rigged form of liberalism with a nasty twist since the State explicitly intervenes on the side of capital, thus making the tension between the two factors of production even more unbalanced.

The so-called German socio-economic model is now being applied in Europe, predominantly in the Eurozone, where there is limited freedom for governments to implement different policies. The overall strategic puzzle is one where the German social model is being transposed on the rest of Europe, which is, the construction of an industrial reserve armyon a European scale.

Agenor

*An article of Employment Law that gave protection from unfair dismissal of employees in all private sector companies over a certain size (>15 people). It was replaced by the Jobs Act.